I Just Read the AIIB’s Articles of Agreement, and Here’s What I Think

June 30, 2015

The Chinese government has published the Asian Infrastructure Investment Bank’s (AIIB) newly adopted articles of agreement. That’s an encouraging early sign of transparency, and more importantly, of timely transparency. Much of what is in the articles was foreshadowed by previous comments and reporting, but there are surprises, such as stronger-than-expected veto powers for the Chinese and the possibility for non-sovereign membership.

Here are my first reactions:

  1. This is very much a development institution in purpose. The Chinese early on sought to distance the AIIB from the other MDBs, both by leaving the “D” out of the name and by emphasizing that the new bank would simply be investing in infrastructure. Yet, the articles establish as a first priority that the AIIB’s purpose is to “promote investment … for development purposes.”

  3. In operations, the AIIB is keeping its options open, with the possibility for financing and activities that extend well beyond traditional infrastructure lending. The articles allow for a range of financing instruments and clients, including identifying new instruments and activities at a later date. The articles also open the door widely to “special funds,” or trust-fund arrangements that are separate from the bank’s balance sheet. These funds do not appear to be restricted to bank members. So perhaps a USAID-funded infrastructure project preparation fund is in the AIIB’s future?

  5. The Chinese will retain more control over presidential selection than do the Americans at the World Bank or the Japanese at the ADB. Specifically, the articles provide veto power for China over selection of the president, formalizing the largest shareholder’s power to decide in an area that has relied on informal arrangements at the other institutions.

  7. More generally, the Chinese veto is more prevalent than might have been expected based on earlier characterizations of the Chinese position. Fair enough, no veto exists for project-level decisions, but the number of other decisions subject to supermajority requirements (i.e., vulnerable to a Chinese veto) appears to go beyond those in the other MDBs.

  9. The articles allow for non-sovereign membership, which is an interesting departure from the traditional MDB model. Could we see a China Investment Corporation membership, or maybe Rio Tinto? The articles would not permit non-sovereign members from countries that are not themselves AIIB members. So, sorry Gates Foundation, this MDB isn’t for you.

  11. The articles adopt (as widely anticipated) a non-resident board of directors, a laudable innovation in my view. Nonetheless, the functions of the board remain largely unspecified, signaling that hard decisions still lay ahead. And when it comes to critical operational questions about the balance of power between the board and senior management, the Chinese were careful to specify a super majority decision making threshold. So the largest shareholder knows key decisions still remain in this area, and they aren’t willing to throw those decisions open to a simple majority vote.

  13. Finally, the composition of the 12-member non-resident board is striking. The articles allocate nine board seats for regional members and three seats for non-regional members, and establish higher minimum voting thresholds for the non-regional seats. These thresholds determine which countries get their own board seats and which countries will need to join multicountry constituencies. Based on the thresholds established in the AIIB articles, it appears that China, India, and Russia among the regional members, and Germany among the non-regionals will be eligible for board seats, while all other countries will be required to join multicountry constituencies. Specifically, 34 regional countries will have to organize themselves into 6 board seat constituencies, while 19 non-regional countries will have to organize themselves into 2 board seat constituencies.  Perhaps more than any other governance standard, the rules and procedures around the non-resident board clearly establish the AIIB as a regionally dominated institution — both in the relative balance of board seats (6 to 3) and in the number of countries within each constituency (just under six countries per regional board seat and just over nine countries per non-regional seat).

Overall, the AIIB’s newly minted articles of agreement reflect an impressive degree of expertise and creativity. They are drafted with clear reliance on existing MDB articles and equally clear independence from those articles. The Chinese decided in establishing a multilateral institution that they would do so from a dominant position, and that position is certainly reflected in the AIIB’s articles. But the overall picture is more complicated than that. Beyond enshrining a favored position for the leading shareholder, the articles also establish clear priorities that favor the region as a whole in governance, seek to establish a governance model that is efficient as well as effective, and retain a high degree of flexibility in all aspects of bank operations so that the institution can evolve over time.

Best of all, the AIIB articles have been established as a public document. Let’s hope that principle carries forward in all aspects of the bank’s operations. 


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.